US Exchange Research Articles

Environmental Awareness of Enterprises through Their Disclosure Magnitude: UK and US Evidence

In the absence of a validly mandatory public policy and a meaningful conceptual framework, corporate environmental disclosure practices have been diverse (Matthews, 1993). In other words, the lack of a single generally accepted standard in which environmental reports can be developed, akin to that of financial reporting principles, is one of the reasons for this undoubted dissimilarity in environmental reporting practices. However, there are imperative requirements relating to environmental information disclosure in many developed countries, for example, environmental related information is required in the Business Review in accordance with s.417 of the Act (Great Britain. Companies Act 2006) in the UK and the US Securities and Exchange Commission (SEC) has developed rules governing disclosure of environmental liabilities, in relation to Items 101, 103, 303 and 503(c) in SEC Regulation S-K (SEC, 2008). The former is rather vague as it is not underpinned by a robust speculative structure, whereas the latter has only focussed on the disclosure of financial information that is environmentally related despite the non-financial nature of predominant environmental information. In response to these, the International Accounting Standards Board (IASB) and The International Sustainability Standards Board (ISSB) has very recently issued the foundational standards, which are IFRS S1 and IFRS S2, to steer corporate sustainability-related disclosures worldwide. The former inaugurally provide general conceptual foundations and the latter has primarily pointed on climate risks and opportunities. The other dimensions are forsaken to line up sometimes in the future. Keywords: Environmental Information Disclosure, Environmental Reporting, Disclosure Quantity, UK, US

Strategic working capital management in response to a performance shock: evidence from the NOx Budget Trading Program

PurposeThis paper examines how manufacturing firms impacted by the nitrogen oxides (NOx) Budget Trading Program (NBP) strategically managed working capital to release funds for increased costs and mitigate the negative impact on firm performance.Design/methodology/approachThe study uses a panel data set including 11,302 manufacturing firm-year observations listed on the US exchanges during the period 2000–2008. The authors use Tobin's Q to proxy for firm performance, and cash holding, cash conversion cycle (CCC), days sales outstanding (DSO), days sales inventory (DSI) and days payable outstanding (DPO) for working capital management (WCM). The empirical analysis is conducted using both ordinary least squares (OLS) and propensity score matching (PSM) regressions.FindingsThe authors find that firms respond to the higher utility costs imposed by the NBP by decreasing CCC, DSO and DSI. This active WCM response partially mitigated the impact of increased compliance costs on performance for firms affected by the NBP. Results are robust in PSM regressions.Research limitations/implicationsClimate change is a global issue that has attracted increasing attention in recent years. This study shows how firms can adjust short-term financing strategies to address the costs of compliance with climate change regulation.Originality/valueThe paper contributes to the emerging literature on corporate finance and climate policy actions. The authors use the unique experimental setting of the NBP to examine the regulatory impact on corporate financial management. The authors demonstrate how firms used active WCM to mitigate the negative performance impact of regulatory compliance with the NBP, providing novel insight on the implication of compliance with climate change legislation.

Climate change, financial risks and reporting: distant horizons?

The notes to financial statements and, in the case of credit institutions, Pillar 3 reports complete and supplement information contained in the balance sheet and income statement. This helps to provide a better estimate of the amount and timing of expected cash flows, and of the associated risks. The climate change challenge introduces new factors that affect the materialisation of those risks, and standards are being developed, from different vantage points and by various organisations, aiming to specify the type of public information –in addition to the notes to financial statements and Pillar 3 reports –that could provide a better picture of these factors. This article presents an overview of the initiatives under way to address the disclosure of climate-related financial risks, focusing on the main international work streams promoted by the International Financial Reporting Standards Foundation, the European Financial Reporting Advisory Group and the US Securities and Exchange Commission. It sets out the context and rationale behind the proposals, their current status and their main content. It also discusses the mechanisms being considered to make the initiatives interoperable and to link this type of information with that provided in the financial statements, in order to prevent fragmentation that could affect financial stability.

The Risk and Performance of Listed Private Equity

Private equity (PE) risk and performance is a black box for investors, as information is quasi-private during a fund’s life. To overcome this issue, the authors use the universe of listed PEs (LPEs) in US exchanges, which permits the measurement of financial fundamentals based on audited quarterly reports, and the observation of share price performance and volatility on a real-time basis. They first show that LPE performance and valuations are highly correlated to that of unlisted PEs, and hence are a good proxy. LPEs constantly exhibit leverage double that of the broader market while showing no distinctive share price performance. Controlling for standard determinants of returns, LPE firms do not outperform market benchmarks. Using COVID-19 as an exogenous increase in tail risk, PE firms grossly underperformed as markets penalized the riskiness and lack of transparency inherent in PE investments. The problems are likely greater in privately held PEs, where performance is self-reported, not audited, and illiquidity periods last up to 10 or 12 years.

Determinants of Softwood Lumber Prices in the US Northwest

Abstract Lumber prices can be volatile and hard to predict from month to month yet are important for many sectors of the economy, ranging from forestry and construction. An economic model of lumber prices was developed and applied to data representing multiple supply and demand determinants of lumber. Using a suite of econometric models, monthly lumber prices were related back to variables including construction permits, US reserve bank credit, tariffs with Canada, exchange rates with Canada, and variables representing shocks associated with the COVID-19 pandemic. Preferred models use relatively small amounts of publicly available information, making them more accessible to industry participants who want to make their own price predictions. Such information can help guide decisions about whether to expand or scale back an operation in preparation for likely future price movements.

Are Chinese or US Institutional Investors Better at Monitoring Corporate Earnings Management? Evidence from Chinese Stocks in the US Cross‐Listing Market

AbstractIn this study, we empirically analyze Chinese firms listed on US exchanges to examine the standalone effects of geographic and market proximity on equity performance. In this regard, we find a negative association between Chinese institutional investors domiciled in the same country where investee firms are incorporated and improved earnings management. However, we find no significant relationship between US institutional ownership and earnings management. Hence, our findings support the geographic rather than the market proximity advantage. Furthermore, the geographic proximity advantage is more substantial in firms with high information opacity, and the results are not altered by choice of earnings management variables.

Preventive and Remedial Actions in Corporate Reporting Among “Addiction Industries”: Legitimacy, Effectiveness and Hypocrisy Perception

The adoption and reporting of CSR policies have important ethical and managerial implications that need scrutiny. This study answers the call of CSR scholars for further studies in controversial sectors by focusing on the voluntary reporting practices of companies that market products or services that generate addiction among consumers. It contributes to the debate on organizational legitimacy and corporate reporting by empirically analyzing whether and how corporations in the tobacco, alcohol and gambling industries disclose their CSR actions and what reactions such disclosures generate in stakeholders. Drawing on legitimacy theory and organizational façades, we apply a consequent mixed-methods design (initiation approach) built on (i) a content analysis of reports prepared by a large set of companies listed on the European, British, US, Canadian, Australian and New Zealand stock exchanges and (ii) an experiment on how different actions taken by the companies (preventive vs. remedial) elicit different perceptions of company hypocrisy and action effectiveness. While previous analyses have focused on “sin” or “harm” industries, this is one of the first to assess how companies account for “addiction”, which is more difficult for them to report and legitimate due to long-term negative consequences. This study contributes to the literature on the instrumental use of CSR reporting by empirically investigating how addiction companies shape their organizational façades and manage organizational legitimacy through disclosure. Moreover, the experimental evidence advances the knowledge of how cognitive mechanisms influence stakeholders in terms of legitimacy assessment and the perceived hypocrisy/effectiveness of CSR disclosure.

The Impact of Sino-US Trade War on The Stock Markets of The Two Countries

This paper analyzes the parallels and variances between the stock markets of the US and China, and the impacts of Sino US Trade War on stock markets in the same countries. The findings are showing that the US and China exchange stock markets are divided into different stock markets and play a critical role in each country’s economy. The stock markets have some differences in the level of development of the accessibility to funds, with the US stock economy being more developed and more integrated into the economy than China's economy. The findings show the Sino-US trade war has been affecting China and the US stock markets negatively. The adverse effects reflect in stock market fluctuations, decline in market capitalization, market equity loss, reduction in prices, and the returns from the stock markets. These adverse effects imply that the Sino-US trade war created more negative impacts than the intended implementation goal.

Assessing the global impact of cryptocurrencies

. Interest in cryptocurrencies is increasing day by day. Cryptocurrencies are increasinglyknown around the world as a mathematical-based encrypted digital and virtual currency thatcannot be controlled by a state, company or authority, and uses the science of decentralizedmonetary system and cryptology. In an environment where a new crypto currency is announcedevery day, there are 7471 types of cryptocurrencies as of 21 October 2020. Although it has ahistory of only eleven years, it is important to investigate and discuss this issue, consideringthe transaction size, prevalence and diversity of this technological innovation. Cryptocurrenciesare used in daily life and commercial activities as a means of payment for purchases of real orvirtual goods and services. They are accepted by many international companies, and are traded inhundreds of clearing and exchange centers. In addition, considering that they have bidirectionalconvertibility with the currencies of many countries in circulation and they have reached a marketsize that grows up to 375 billion USD in total, the nature and importance of the business isevident. The study discusses the current state of the crypto money market, countries’ attitudestowards cryptocurrencies and the global effects of crypto currencies.Bitcoin has set a new record for value on the exchange. According to the trading data, on February9, 2021, the price of cryptocurrency exceeded $ 48 thousand.The reason for the new jump in therate was the news of a large investment by Tesla: Elon Musk’s company bought bitcoins for $ 1.5billion.In the future, Tesla plans to accept bitcoin as a form of payment for goods and services.The publication of a financial report for the US Securities and Exchange Commission (SEC)instantly increased the value of cryptocurrency in the market by more than 10%. At its peak,Bitcoin has shown a 40% increase over the past week

Corporate social responsibility and corporate interlocks: Fortune 500 companies’ performance on the Sustainable Development Goals

PurposeThe role that corporations play in environmental and social sustainability has become increasingly important due to their size and embeddedness in our everyday lives. This study aims to examine the relationship between corporate social responsibility (CSR) and corporate interlocks for the Fortune 500 companies.Design/methodology/approachTo collect data, various sources were used including data web scraped from US Securities and Exchange Commission, Bloomberg ESG, ASSET4, Carbon Disclosure Project and data from each companies’ websites. To measure CSR, this paper uses an original United Nations Sustainable Development Goals (SDG) index, and to measure corporate interlocks, it uses the Bonacich centrality score and has a sample of 401 companies. To account for missing data, Bayesian multiple imputation was used. For the final analysis, linear regression analysis was conducted, for which all the assumptions are met.FindingsThe findings show that for most SDGs, corporate interlocks is an important predictor, but not for all SDGs. In other words, they indicate that corporate centrality remains to be an important variable in most aspects of CSR, but a more nuanced approach is required.Originality/valueThis paper uses the SDGs to provide a granular perspective of CSR, which is stronger and more methodologically rigorous compared to the existing metrics of CSR. Consequently, it provides an original insight into the corporate interlocks literature, which has not been empirically researched using granular CSR data.

The dynamics of Australian stock indices and commodities based on MGARCH-DCC and wavelet techniques

This paper aims to investigate the extent of hedging and diversification opportunities available for an Australian investor who holds a portfolio consisting of Australian conventional and Islamic indices, crude oil, gold, Bitcoin, and the Australia–US exchange rate of daily data from 2011 to 2021. The relevant time-varying and time-scale dependent techniques, such as MGARCH dynamic conditional correlation (MGARCH-DCC), continuous wavelet transform (CWT), and maximal overlap discrete wavelet transform (MODWT) are employed to discern the correlation and volatilities of the variables. The paper’s unique contribution lies in unveiling an Australian investor’s diversification opportunities of a portfolio containing Bitcoin, gold, oil, Islamic indices, conventional indices, and exchange rates. Findings from MGARCH-DCC analysis suggest that Bitcoin is the least correlated variable. However, investors may be discouraged from choosing Bitcoin as a diversification instrument due to its high volatility. The evidence further suggests that Australian investors may benefit from diversification with gold. Nonetheless, the CWT result shows that the diversification benefits effects will last for a holding period no longer than 64 days. Our research findings tend to indicate the importance of finding diversification opportunities for investors with heterogeneous investment holdings over various periods by utilising relatively advanced techniques.

The Political Economy of American Exchange Rate Bill Voting: From the Perspective of RMB Appreciation

Abstract Under the theoretical framework of international trade political economy, this paper examines whether interest groups can dominate the voting of the US Exchange Rate Manipulation Act in 2015 from the perspective of RMB appreciation. Taking 100 senators as samples, this paper makes model estimation by using Full Information Maximum Likelihood Method (FIML), and quantitatively investigates the deep-seated driving factors behind the voting results of the US Exchange Rate Manipulation Act. The empirical results show that the influence of political donations from different interest groups on the voting behavior of parliamentarians is different. The political donations from American labor organization significantly affect the voting behavior of parliamentarians, but business groups and ideological organizations do not play a significant role in the voting results. In addition, senators’ personal characteristics affect the political donation of the bill to a certain extent, but do not affect the voting results. In the future, China needs to continuously pay attention to the latest progress of US exchange rate policy, correctly evaluate its impact on China’s economy, and maintain communication and coordination with important US interest groups to reduce the negative impact on related industries in China. JEL classification numbers: F14, F50, F31. Keywords: RMB Appreciation, Trade Protection, Bills Voting, Political Donation, Interest Group.

The transition of the global financial markets' connectedness during the COVID-19 pandemic

This study contributes to the literature on financial research under the presence of the COVID-19 pandemic. Fresh evidence emerges from using two novel approaches, namely network analysis and wavelet coherence, to examine the connectedness and comovement of financial markets consisting of stock, commodity, gold, real estate investment trust, US exchange, oil, and Cryptocurrency before and during the COVID-19 onset. Moreover, unlike the previous studies, we seek to fill a gap in the literature regarding the ex-post detection of COVID-19 crises and propose the Markov-switching autoregressive model to detect structural breaks in financial market returns. The first result shows that most financial markets entered the downtrend after January 30, 2020, coinciding with the date the World Health Organization (WHO) declared the COVID-19 pandemic as a Public Health Emergency of International Concern. Thus, it is reasonable to use this date as the break date due to COVID-19. The empirical result from network analysis indicates a similar connectedness, or the network structure, in other words, among global financial markets in both the pre-and during COVID-19 pandemic periods. Moreover, we find evidence of market differences as the MSCI stock market plays a central role while Cryptocurrency presents a weak role in the global financial markets. The findings from the wavelet coherence analysis are quite mixed and illustrate that the comovement of the financial markets varies over time across different frequencies. We also find the main and most significant period of coherence and comovement among financial markets to be between December 2019 and August 2020 at the low-frequency scale (>32 days) (middle and long terms). Among all market pairs, the oil and commodity market pair has the strongest comovement in both pre-and during the COVID-19 pandemic phases at all investment horizons.

Disclosure of Related Party Transactions Under IFRS: Does Cross-Listing Reduce the Legal Origin Disclosure Gap?

Synopsis The research problem We investigate whether cross-listing in the United States is associated with a reduction in disclosure deficiencies about related party transactions (RPTs) related to the legal traditions of firms’ countries of origin. Motivation The extant literature shows that there is a disclosure disparity associated to the firms’ legal origin (civil or common law) and the countries’ institutions (regulation, enforcement, and market scrutiny). The literature has not examined whether cross-listing in the United States mitigates (or eliminates) the disclosure gap for firms from civil law countries and countries with worse institutions. We focus on RPTs because the US Securities and Exchange Commission has put particular emphasis on regulation of this type of disclosure. Hypotheses H1: Among domestically listed firms, those from countries with common law tradition present superior level of RPT disclosure than firms from countries with a civil law tradition. H2: Cross-listed firms have a superior level of RPT disclosure compared to domestically listed firms from the same country. H3: Among cross-listed firms, those from countries with common law tradition present a superior level of RPT disclosure than firms from countries with a civil law tradition. Target population Firms from countries that have adopted international financial reporting standards (IFRS). We sample firms from the G20 countries that have adopted IFRS because of their representativeness in the world economy. Adopted methodology Ordinary least squares (OLS) regressions with firm and industry-year fixed effects. Two-stage least squares (instrumental variables) regressions to tackle endogeneity issues. Analyses We manually collected data from the financial reports of 531 firms from the G20 countries that have adopted IFRS to compute indices of compliance with disclosures required by IAS 24. We performed double-difference regressions, comparing firms across their legal origin (common law versus civil law), and cross-listing status (cross-listed in the United States versus domestically listed only). In addition, we studied the institutional channels that drive the disclosure gap between common and civil law firms. Findings For domestically listed firms, we found that firms from the common law tradition have RPT disclosure levels superior to those of firms from the civil law tradition. We found that the level of RPT disclosure is associated with countries’ regulatory quality, rule of law, and control of corruption. However, we did not find any differences in the level of RPT disclosure among firms cross-listed in the United States that can be associated with firms’ legal origin or with other home-country institutional features. Our results suggest that the regulatory enforcement and scrutiny of capital markets imposed by the US market compensate for home-country institutional deficiencies and eliminate differences in firms’ RPT disclosures across legal origins.

Are longer annual reports less readable? Evidence from foreign firms listed on the United States Stock Exchanges

This study examines whether longer annual reports are less readable. Using the sample of 20-F forms published by foreign firms listed on the United States Stock Exchanges, we find a significantly negative association between the length of annual reports and readability. This result suggests that longer annual reports are not less readable. The change in writing styles with shorter sentences, which is better complied with regulations of the US Securities and Exchange Commission (SEC) on disclosure, is considered the main reason for longer but more readable annual reports. We also raise awareness when employing the length of annual reports as the proxy of readability in research on the complexity of annual reports.

Covid-19 cases influencing the Stock Exchange indices on the example of BIST100 in Turkey, NASDAQ in the USA and WIG in Poland

The purpose of the article/hypothesis: The goal of this paper is to show differences between markets’ reactions to a number of Covid-19 new cases. Stock exchanges and their indices from Turkey, the USA and Poland are analyzed during the first year of the global pandemic. The hypothesis that there are significant differences between markets regarding the reaction to new Covid-19 cases is tested in this research paper.
 Methodology: BIST100 Index representing the Istanbul Stock Exchange in Turkey, NASDAQ Composite representing NASDAQ Exchange in the USA and WIG Index representing the Warsaw Stock Exchange in Poland are analyzed in relation to Covid-19 new cases. The correlation analysis with delays of markets’ reactions and panel data OLS regression models are tested with rates of return as dependent variables.
 Results of the research: The findings show the immediate negative influence of new cases rates of change on the stock indices rates of return, although there are some differences and similarities between correlation coefficients, especially when the delays in reactions are taken into consideration. The Turkish exchange was reacting immediately to the rates of change of new Covid-19 cases, the US exchange needed more time to adjust, while in Poland the correction was detected after investors’ over-reaction in the first two weeks. The significant difference between the Polish and US markets regarding the correlation is confirmed indicating that the reactions on the global market were not identical. What the findings add to the literature is the evidence of differences and similarities between markets representing different religions, continents, and cultures.

Narrative forward-looking information disclosure, do ownership concentration, boardroom gender diversity and cultural values matter? A cross country study

PurposeThis study aims to identify the main factors that drive the differences in the levels of forward-looking information disclosure (FLID) across four countries. This study goes beyond the firm-specific characteristics to the countries-specific factors to explain the observable differences in the level of FLID among the UK, Italian, Hong Kong and Chinese American Depositary Receipts (ADRs) firms trading in US Exchanges.Design/methodology/approachTo validate the levels of FLID, corporate financial information environment (CFIE)-final reports structure extractor (FRSE) was conducted on the annual reports of a sample of 353 listed firm observations in 2020 across four different countries. Also, the ordinary least square regression model was used to examine the proposed relationships.FindingsThe empirical results indicate that the level of FLID is highest among the Chinese ADRs firms trading in US Exchanges and UK listed firms. Also, ownership concentration and gender diversity have a positive correlation with the level of FLID. Additionally, long-term orientation positively influences the level of FLID. Considering the moderation effect of power distance and masculinity dimensions, countries with larger power distance tend to have a lower impact of ownership concentration on the level of FLID, whereas countries with higher masculinity tend to have a lesser positive relationship between gender diversity and the level of FLID.Originality/valueNotwithstanding, this study provides novel and persuasive evidence regarding the effects of firm- and country-specific characteristics as possible determinants of forward-looking disclosures, drawing on evidence from international companies with free floats, boards with female quotas and cultural values including masculinity and long-term orientation. This work offers unique insights from the upper echelons lens, which implies that firms need to obtain a critical mass of gender diversity to achieve a more balanced forward-looking perspective on their annual reports.

Detecting accounting fraud in companies reporting under US GAAP through data mining

The accounting fraud detection models developed on financial data prepared under US Generally Accepted Accounting Principles (GAAP) in the current literature achieve significantly weaker performance than models based on financial data prepared under different accounting standards. This study contributes to the US GAAP accounting fraud data mining literature through the attainment of higher model performance than that reported in the prior literature. Financial data from the 10-K forms of 320 fraudulent financial statements (80 fraudulent companies) and 1,200 nonfraudulent financial statements (240 nonfraudulent companies) were collected from the US Security and Exchange Commission. The eight most commonly used data mining techniques were applied to develop prediction models. The results were cross-validated on a testing dataset and then compared according to parameters of accuracy, F-measure, and type I and II errors with existing studies from the US, China, Greece, and Taiwan. As a result, the developed predictive models for accounting fraud achieved performance comparable to those achieved by models built on data from other accounting standards. Moreover, the developed models also significantly outperformed (accuracy 10.5%, F-measure 16.1%, type I error 12.2% and type II error 15.2%) existing studies based on US GAAP financial data. Furthermore, this study provides an extensive literature review encompassing recent accounting fraud theory. It enhances the existing US fraud data mining literature with a performance comparison of studies based on other accounting standards.

The impact of the US interest rate and oil prices on renewable energy in Turkey: a bootstrap ARDL approach.

This research investigates the spillover effect of the US interest rate and oil prices on renewable energy utilization in Turkey. By employing a novel bootstrap autoregressive distributed lag approach on annual data from 1985 to 2016, the empirical findings and discussions represent the first contribution to the energy economics literature. The findings of this research confirm that the US interest rate has a significant spillover effect on the use of renewable energy in Turkey through the channels of income and local interest rate. Due to limited foreign exchange reserves, high foreign debt, low international reserves, and devaluation of the local currency, the Turkish economy is highly intertwined with the US economy through international investment and trade. All these factors reinforce the spillover influence of the US interest rate on energy consumption in Turkey. Moreover, this study affirms that the price of oil has a negative impact on renewable energy use through the real income channel. In order for Turkey to realize its investments in renewable energy resources more reliably and sustainably, the study suggests that policymakers should revise the current economic growth model by making it more resilient to external shocks such as the US interest rate, exchange rate, and oil prices.

Measuring Determinants of Time Deposit in The Commercial Banks in Nepal

Time deposit is one of major source of liquidity of the commercial bank to maintain money supply to the demand of business and household sector. In this context, an interesting query is the determinants of time deposit. This paper measures the determinants of time deposit in the commercial banks of Nepal based on 15 years’ time series data sets from 2000-01 to 2017-18 of the sample commercial banks published by the central bank of Nepal. Using descriptive statistics and multiple regression models as the analytical tools, the paper has found fluctuating trend of liquidity in the commercial banks but inclining trend of external and internal variables including GDP, Deposit, Capital, Size of Bank, remittance and public debt. In this trend, the liquidity of the commercial banks depends significantly on time deposit and remittance inflow. Besides, the positive trend of time deposit from 1994-95 to 2017-18 has caused the positive trend of total deposit from 1994-95 to 2017-18. Additionally, the paper has found that GDP per capita, US exchange rate, interest rate and the branch of the bank are positively and significantly determinants to the time deposit of the commercial bank but inflation rate is negatively and determinant with significance. The internal variables are more determinants than the external variables to the time deposits. It is clear that time deposit is a reliable and long-term source to main the bank liquidity of the commercial bank for their financial stability and performance depends on more the internal variables than the external variables. Therefore, the commercial bank should reform as mentioned in the monetary policy and money market dynamics to improve the competitiveness and smartness of bank policy including interest rate policy and branch of the commercial banks for effective mobilization of the scattered small resources all over the country for higher rate of capital formation, investment, and economic growth